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Home Prices Growing As Fast As Before The Housing Collapse: Case-Shiller

San Francisco was one of the best performers, along with the Southwest, according to Case-Shiller - Image credit: Getty Images via @daylife

With the Federal Reserve firmly in support the housing market continues to show signs of substantial improvement. The most widely followed measure of home prices, the S&P/Case-Shiller indexes, rose at its fastest rate since the summer of 2006 in January, data released Tuesday showed.

While prices remain nearly 30% off their pre-housing bubble peaks, a drawing down of the shadow inventory and a continued positive trend in home sales point to further strength ahead, with BarclaysBarclays’ economic research team estimating home prices will gain between 6% and 7% this year. Still, investors should recognize the market remains clogged, that foreclosures in many states remain stalled by judicial processes, and that banks are sitting on thousands of properties that will have to make their way through the sales channels.

Case-Shiller data for January showed the 10-city composite jumped 7.3% over the past 12 months, while the 20-city index surged 8.1%, its fastest levels since before the housing collapse. On a yearly basis, all cities posted gains in January while 19 of the 20 showed acceleration (Detroit slowed down but still posted double-digit increases).

Index Chairman David Blitzer appeared excited in his comments, highlighting New York’s trend reversal (after more than two years posting negative yearly performance) and strength in the Southwest (Phoenix and Las Vegas), which along with San Francisco were the strongest performers (“they were also among the hardest hit by the housing bust”).

The Case-Shiller data was complemented by February new home sales numbers, which point to an upward trend. While the number fell 4.6% to 411,000, home sales had soared 13.1% from December to January, prompting Barclays’ analysts to “not read much into the […] decline.” Plante Moran’s CIO, Jim Baird, was also bullish, noting “conditions remain favorable in the housing market, with prices rising and sales volume still on an upward trend, last month’s results notwithstanding.” Baird added “the market still has a long way to go nationally, but the healing process – and a return to a normalized housing market – is definitely well underway.”

A housing recovery is most definitely a positive thing for the economy, as it was one of the major missing legs in the tepid recovery the Bernanke Fed has been trying to spark for the past five years. Indeed, the Fed has spent those years buying up residential-mortgage backed securities in their attempt to take toxic assets out of the market and push down mortgage rates.

This, for example, has made the RMBS trade 2012’s best investing move, as the hedge fund world has proven, with mortgage funds like Steve Kuhn’s Pine River delivering returns approaching 40%. In the equity markets, homebuilders have been all the rage, with the XLH homebuilders ETF up 39% over the past 12 months. Individual names like Lennar and Toll Brothers are up between 40% and 60% in that time, while KB Home has returned more than 120%.

The housing market is clearly on a northward trajectory, but it’s by no means out of the woods yet. Real estate intelligence firm CoreLogic released its latest shadow inventory numbers on Tuesday, indicating that there are still 2.2 million residential properties that are “seriously delinquent, in foreclosure and held as real estate owned by mortgage servicers, but not currently listed.” The number was down 18% in January from a year ago, and 28% from its 2010 peak, but still had a monetary value of about $350 billion.

At the same time, major banks are still spooked by their mistakes during the financial crisis. Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and Ally Financial reached a $19 billion settlement with the Attorneys General of 49 states about a year ago, yet only Ally Financial has fulfilled its obligations. Banks are still sitting on properties and RMBS which they need to offload, added to their mortgage relief obligations tied to the settlement.

Some suggest the current state of the housing market is artificial, and that it will eventually face a correction. Peter Schiff, of Euro Pacific Capital, believes a housing collapse is in the cards as the Fed will eventually have to exit its accommodative stance. “We are building more homes than we can afford,” Schiff told Forbes, adding that the Fed will crash the market by tightening its policy stance.

Baird, of Plante Moran, has a different view, attributing the improvement to the wealth effect, which Bernanke has actively pursued. “Although the residential housing market represents less than 3% of GDP today, improvement in housing is still viewed as a key bellwether indicator of the impact of the wealth effect, the health of the consumer sector, and the ripple effect into the construction industry and retail sector,” he explained. Baird concluded:

In the near term, the ability of the consumer sector to remain resilient in its spending habits will be critical to supporting growth given the headwinds of higher taxes, elevated prices at the pump, and modest wage growth. Given the mixed picture painted by economic data, it’s easy to understand the case made by either the “glass half full” or the “glass half empty” crowds. In aggregate, it seems to point to a continued modest expansion, and an economy that is neither falling off a cliff nor firing on all cylinders.

The return of housing is a welcome sign. It is also a reflection of Fed Chairman Ben Bernanke’s attempts to jump-start the economy through monetary easing and QE. While the shadow inventory and a clogged up foreclosure pipeline present challenges, if the economy improves to the point where the labor market begins to seriously recover, it should be possible to overcome those obstacles in the medium-term. Yet, the risk of rising interest rates lurks in the horizon.

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They can be cooked up as easily as before by the same formula. Speculation is actually a good entertainment if we already built up our infrastructure with a healthy social safety net. Too bad, we are still cooking ourselves into spoil breads without paying appropriate attention to our social infrastructures allowing our modern technologies hijacked by transnational financial investment corporation bankers.

Problem is Banks are not lending. We gave them our tax dollars and now they want our homes. Reuirements have become “obstacles” and the only people that can get help must be underwater. Or some minority program. It’s a travesty of socialism perpetrated by Obama to supress the middle class and elevate the poor. The truely “rich” will not be hurt; but $250K is far from what rich is; especially when you loose all your deductions, pay full boat for your kids education and pay through the nose in taxes to the state that are spent on Ghettos and ESL classes. These “middle class” neighborhoods do not syphen tax dollars for maintenance of their society. That is an inner city problem; paid for by suburban people. Yet we get nothing but screwed!

The “Fed” pretends that keeping the interest rate down is to our advantage. Would you invest 200k of your money for three decades expecting only a 3.5% return? That question makes it easier to understand why the masses aren’t flocking to the US to buy mortgages doesn’t it? In China, the mortgage rate is 6.5%; where do you think investor money is going? . . . . Banks can’t write mortgages if they can’t sell them.

We have 5 decades of data that show about 4.5 to 6.5% appreciation in property values (based on Price-Shiller data). Then around 2004, the price jumps up 87% in less than two years. If you graph that half-century prior and draw a trend-line, you will find that houses should NOT have attained the 2006 price until about 2028. So is it really doing the consumer a favor by keeping the price up and offering a low interest to finance? I think if you do the math, you will agree; the pre-boom prices would be far better for the consumer.

Nationwide, there are close to 10 million unoccupied single-family dwellings empty as a direct result of the housing crisis. The banks are starting to bulldoze these properties to get them off bank books. At the rate this crisis is unfolding, banks may end up bulldozing a large geographic segment of the U.S. housing market — quite literally — except for really upscale properties the rich can afford to maintain.

The 3 Bedroom/2 Bath houses sold 1,2 or 3 years ago had no windows, No toilets, no plumbing (torn out), missing stoves, missing dishwasher, no cabinets, flooring torn up, tiles cracked, missing AC units, electric copper wiring stolen…etc and the ones selling now have alot of these things, the banks also have a huge inventory of 3 bedroom/2 Bath houses still bank owned. They are not even listed forsale, and are in much better condition than the same size comparable house they are using to guide these metrics. Even the county assesor office used current house sales prices to compare to the train wrecks sold in the past. It is a seriously flawed system, and everyone wants property prices to go up: Coty gets taxes, People get equity, banks get money… win win win: Right